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? %■ M/f A e/3 :FJ) 



[mjth Congress 
1st Session 



COMMITTEE PRINT 



STATUS OF THE FAMILY FARM 



Submitted by the United States Department of Agriculture 

in Compliance With Title /, Sec. 102 of the 

Food and Agriculture Act of 1977 



COMMITTEE OX AGRICULTURE, 

XUTRITIOX, AXD FORESTRY 

UNITED STATES SEXATE 




JUNE IS, 1979 




Printed for the use of the Committee on Agriculture, Nutrition, and Forestry 



44-916 



U.S. GOVERNMENT PRINTING OFFICE 
WASHINGTON : 1979 



COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 

HERMAN E. TALMADGE, Georgia, Chairman 



GEORGE Mc GOVERN, South Dakota 
WALTER D. HUDDLESTON, Kentucky 
RICHARD B. STONE, Florida 
PATRICK J. LEAH Y, Vermont 
EDWARD ZORINSK Y.Nebraska 
JOHN MELCHER, Montana 
DONALD W. STEWART, Alabama 
DAVID H; PRYOR, Arkansas 
DAVID L. BO REN, Oklahoma 

Henry J. Casso, Staff Director 
Carl P. Rose, General Counsel 
George S. Dunlop, Minority Staff Director 



JESSE HELMS, North Carolina 
MILTON R. YOUNG, North Dakota 
BOB DOLE, Kansas 
S. I. HAYAKAWA, California 
RICHARD G. LU GAR, Indiana 
THAD COCHRAN, Mississippi 
RUDY BOSCHWITZ, Minnesota 
ROGER W. JEPSEN, Iowa 



(H) 



FOREWORD 



Over the past 40 } 7 ears, our agriculture policies have been directed 
primarily toward maintaining reasonable incomes for the Nation's 
farmers and supplying American consumers with an abundant supply 
of high quality food and fiber at reasonable prices. 

While some persons have criticized our farm programs for various 
reasons, we can be proud of the achievements of American agriculture. 
For example, net farm income is expected to reach a near record high 
in 1979 of well over $30 billion; at the same time, consumers will 
spend less than 17 percent of their disposable income for food — the 
lowest of any nation in the world. 

It is my view that the family farm is the heart and soul of American 
agriculture and is the primary reason why each of our farmers is able 
to feed and clothe approximately 75 Americans and together export 
over $30 billion worth of agricultural products annually. 

The number of farms in this country has declined from 6 million in 
1935 to under 3 million today. As the number of farms has declined, 
farms in general, have become larger in size. There are rising fears that 
the traditional family farm in America may be marked for extinction 
and that we may be headed toward a system of agriculture based on 
giant, corporate-type farms. As a result, the structure of American 
agriculture is a matter of growing concern. 

Congress recognized and shared these concerns as demonstrated in 
the Food and Agriculture Act of 1977. As stated in section 102(a) 
of the 1977 act, "the maintenance of the family farm system of agri- 
culture is essential to the social well-being of the Nation and the com- 
petitive production of adequate supplies of food and fiber." Under 
section 102(b) of that act, the Secretary of Agriculture is required to 
prepare annual reports "in order that Congress may be better informed 
regarding the status of the family farm system of agriculture in the 
United States." The report contained in this print is the first report 
prepared by the Secretary under this legislative mandate. 

While the report contains no policy recommendations, it identifies 
the data needs to address effectively the unanswered questions about 
the changing structure of American agriculture. For informed public 
policy judgments, an understanding of the forces affecting farm struc- 
ture is essential. It is important to know, in fact, that a given pub- 
lic policy — such as a particular commodity program or tax provision — 
has the consequences on farm structure that are popularly believed. 

Because of their sincere concern about the structure of American 
agriculture, the rapid expansion of large farm units, and the uncertain 
future of the family farm, many persons question our traditional farm 
commodity programs. Some believe that these programs have in- 
creased the trend toward fewer and larger farm units and, therefore, 
suggest that a national dialogue be established on this issue. 

(in) 



IV 

While such questions go to the heart of our national farm policy 
and challenge the basis of the programs that have been enacted over 
the past 40 years, I welcome such a discussion. Such a debate can be 
a useful and wholesome way to lay the groundwork for the develop- 
ment of the 1981 farm bill. In fact, as chairman of the Committee on 
Agriculture, Nutrition, and Forestry, I have initiated new studies of 
farm structure by the best agricultural policy experts in the Nation. 

We can and should debate ways that farm price and income protec- 
tion programs — whether they be commodity loans, target prices, grain 
reserves, direct purchases, or other measures — can be improved and 
made more responsive to the needs of farmers operating family-sized 
units. I believe that improvements can be made without abandoning 
the program approaches that have proved themselves in the past. 

In reality, there probably is a complex set of economic, social, and 
psychological reasons why the structure of American agriculture is 
changing. As this Nation's farms have grown larger and fewer in 
number, farm families have become more dependent on outside sources 
for their production items, as well as other personal goods and services 
such as food, clothing, and entertainment. Subsistence farming is all 
but gone, and farm families have become more like their urban counter- 
parts. 

Urban workers often need higher wages to maintain or enhance 
their standard of living. Farmers have the same problem. They react 
by expanding the size of their operation — the primary way the}' can 
increase their incomes since the}' have little or no control over prices 
received for their production. 

Many persons associated with government and universities have 
watched nonfarm small businesses decline in economic importance and 
lamented it, and now are concerned that the small family farm — 
probably the most viable small business remaining today — will expe- 
rience a similar fate. 

As a result, there has been a tendency to blame the Federal Govern- 
ment for the growth in farm size. Since little solid data are available 
on the effects that Government policies have on farm structure, there 
is a tendency to accept conclusions that are based more on emotion 
than on fact. Some hold out the hope that a villain can be found so 
that the situation can be changed with ease, or look for. new and 
inexpensive means to achieve the desired end result. 

While I am pleased that many persons will join in the discussion of 
this issue over the coming months, E hope that the debate on farm 
policy will not be taken as a signal that this Nation is about to turn 
its back on programs that — for all their shortcomings and imperfec- 
tions — have sought to assure the farmer a reasonable income and the 
COD , mier an abundant and reasonably priced supply of food and fiber. 
The firsl annual report of the Secretary of Agriculture on the family 
farm outlines the big job ahead for all of us w ho are interested in the 
inued success of American agriculture, and I look forward to the 
challenge. 

Herman E. Talmadge, Chairman. 



LETTER OF TRANSMITTAL 



Department of Agriculture, 

Office of the Secretary, 
Washington, B.C., September 20, 1978. 
Hon. Herman E. Talmadge, 

Chairman, Committee on Agriculture, Nutrition, and Forestry, U.S. 
Senate, Washington, B.C. 
Dear Mr. Chairman: Enclosed is a copy of the first report on the 
Status of the Family Farm in the United States as required by the 
1977 Food and Agriculture Act (title I, sec. 102). The request by 
Congress for this report recognizes one of the most critical issues which 
face agriculture policymakers today: how to ensure that our programs 
and policies lead both to the continuation of our efficiency in food 
production and to the strengthening of the family farm structure. 

The report findings are based primarily on research initiated before 
the 1977 Food and Agriculture Act. Therefore, in many cases on the 
data available it was not possible to answer fully the questions which 
I feel we must answer on this important topic. We have initiated new 
research, which, as it becomes available, will be included in special 
reports, as well as in future annual family farm reports to the Congre--. 
We are attempting, through this series of special research projects, to 
provide a total picture of the structure of agriculture to the Congress 
and to other policymakers, so that we may have a solid analytic ba>e 
upon which to undertake specific corrections in program operation-, to 
propose amendments to current legislation, and new legislation where 
necessary to further enhance and protect the family farm system. It 
was not possible to do all of this for the first report. However, the report 
is a concise review of the current farm structure, with some conclusions 
upon which to base further investigation. I hope you will find it of use. 
Sincerely, 

Bob Bergland, 

Secretary. 

(V) 



Acknowledgements 

This report was prepared in the Economics, Statistics, and Coopera- 
tives Service (ESCS), U.S. Department of Agriculture. While the final 
report reflects input and assistance from many people, the report was 
prepared primarily by and under the direction of Donn A. Reimund, 
ESCS. This report draws heavily from a long report prepared for 
ESCS under contract by Dr. Luther Tweeten, regents professor, 
Department of Agricultural Economics, Oklahoma State University. 
Special appreciation is also due to Susan Sechler, Office of the Secre- 
tary, for her assistance in designing, reviewing and editing the report. 

(VI) 



CONTENTS 



Page 

Foreword in 

Letter of transmittal V 

Status of the family farm: 

Introduction, conclusions, and research recommendations 1 

Family farm definition 2 

Inadequate data 3 

Conclusions 3 

Research agenda 6 

Trends in the farming sector 9 

Number and size characteristics of farms 9 

Farm output 10 

Farm income 11 

Assets in the farming sector 12 

Returns to equity in farming sector 16 

Tenure 17 

The farm labor force 17 

Form of business organization 18 

Vertical coordination 20 

Forces affecting the structure of farming 23 

Technological economies of size 23 

Pecuniary and market economies 24 

Land price increases 24 

Impacts of inflation on the farming sector 26 

Farm prices 27 

Impact of risk and instability 28 

Credit institutions 29 

Tax policies 29 

Environmental and other regulations 30 

Structural impacts of farm commodity programs 30 

Public research, education, and technical assistance programs 32 

(vn> 



Digitized by the Internet Archive 
in 2013 



http://archive.org/details/familyfa1961unit 



STATUS OF THE FAMILY FARM 



Introduction, Conclusions, and Research 
Recommendations 

The Food and Agriculture Act of 1977 directs the Secretary of 
Agriculture to submit to the Congress annually: "... a written 
report containing current information on trends in family farm 
operations and comprehensive national and State-by-State data on 
nonfamily farm operations in the United States. The Secretary shall 
also include in each such report (1) information on how existing 
agricultural and agriculture-related programs are being administered 
to enhance and strengthen the family farm system of agriculture in 
the United States, (2) an assessment of how Federal laws may en- 
courage the growth of nonfamily farm operations, and (3) such other 
information as the Secretary deems appropriate or determines would 
aid Congress in protecting, preserving, and strengthening the family 
farm system of agriculture in the United States" (title I, section 102). 

This request reflects the concern of the Congress about: (1) the 
importance of the structure of American agriculture in assuring 
continued supplies of food and fiber at reasonable prices; (2) the need 
to maintain a viable farming sector that provides opportunities for 
a large number of individuals and families having considerable 
management independence and freedom; and (3) changes in the 
structure and organization of U.S. argiculture resulting from complex 
interactions of economic, technological, social, and political forces. 
These include Federal farm policies and programs that may be affect- 
ing the farm sector in ways not intended by the Congress or by the 
executive branch. 

To assure that the Department is able to address these issues and 
concerns, we are initiating new research. It will focus on better 
describing the present organization structure, and performance of the 
farming sector and directions of change; and better understanding 
and explaining the forces causing change, the implications of alterna- 
tives to the changes taking place, and the attendant public policy 
issues. 

Without prejudging the findings of further research, this initial 
report puts the structural change and "family farm" issues into 
perspective, provides tentative insights into the forces causing 
change, and identifies research and data needed to deal effectively 
with policy issues likely to emerge. 

The first section examines trends in farm size, output, and income 
(farm and off-farm). It examines trends in the financial structure 
and organization of the farm sector including land tenure and prices, 
farm financing, assets, returns on equity, and debt. It also attempts to 
measure other dimensions of structural change, such as trends in the 

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44-916 — 79 2 



number of corporations involved in farming, vertical integration, 
changes in labor requirements, and the ability of young persons to 
enter farming. 

The second section examines the major forces behind changes in 
the structure of farming. These include economic and market forces, 
technological forces, institutional changes, and farm policies and 
programs. 

FAMILY FARM DEFINITION 

We faced two critical limitations in preparing this report. First, 
there is no common meaning or operational definition of a "family 
farm" completely satisfactory for policy purposes. The term means 
many things to many people. No one definition serves all analytical 
purposes and every definition has its shortcomings. 

A common view of a family farm is one operated by a farmer and his 
family where the farmer provides much of the labor needed for the 
farming operation, makes most of the management decisions, assumes 
most of the risk, and reaps the gains or losses from those decisions. 

Some people attempt to delineate family farms in terms of size. But 
any size delineation is arbitrary. For example, most small farms with 
sales of $5,000 to $20,000 are operated by individuals or families. 
However, many large farms with annual sales of $100,000 or more are 
also operated by individuals and families who make the management 
decisions and provide much of the farm labor. 

At the upper end of the size scale, it is difficult to identify a single 
cutoff point for family farms. Some farms as small as $100,000 in sales 
are completely owned and operated by nonfarm corporations. Con- 
versely, some with sales in excess of $1 million meet the popular 
criteria for a family farm, and indeed these farmers and their families 
consider themselves family farmers. 

The form of business organization alone is not a particularly useful 
guide to defining a family farm. Many family farms are incorporated 
for tax purposes and other business reasons or operated as partnerships. 

Neither is ownership a useful test of a family farm. Many farm 
operators choose, for various reasons, to rent or lease land from others 
for part or all of their farm operations. Others see land rental as a way 
to get started in farming and as a step toward eventual ownership. 
Furthermore, much of the land rented to farm operators is owned by 
retired farmers or surviving spouses and other family members. 

Some analysts have used proportion of labor provided by the farm 
operator and family as a criterion for defining family farms. According 
to the most frequently used assumption, a family farm is one that hires 
no more than 1.5 man-years of labor per year. This is an awkward 
definition. Labor requirements vary greatly by type of farm. A very 
large wheat farm in the Northern Plains can be operated with very 
little hired labor; a relatively small truck crop farm could require a 
substantia) amount of hired labor in peak seasons. 

Finally, some suggest that a family farm be one on which the operator 
and family depend primarily on farming for a living. While it may be 
useful for policy purposes to know how many families depend pri- 
marily on farming i or a living, this definition also has severe limitations. 
If a farmer devotes most of his time to the farm but his wife works off 
the farm and nets more income than he does, is the farm any less a 



family farm? If a farm family invests its farm earnings in nonfarm 
stock or other investments which eventually earn more money than the 
farm operation, is it no longer a family farm? 

In summar}^ no single definition of a 'family farm" is completely 
satisfactory for all purposes. Nevertheless, it is useful in understanding 
the farm sector to have a perspective on the mix of farms and current 
trends by value of sales, type of organization, sources of income, forms 
of vertical coordination, degree of concentration, and other criteria. 
We have attempted to provide such information in this report while 
initiating research to explore the more complex questions. 

INADEQUATE DATA 

Inadequate data is the second problem we faced in preparing this 
report. Without reliable and timely data, it is difficult to advise 
policymakers on the most pressing issues concerning the structure of 
agriculture. 

Neither the existing data base nor research to date is adequate to 
explain the developments taking place in the farm sector, the situation 
of farms in the various size groups, or the individual and cumulative 
impacts of all the forces causing structural changes. Improvements in 
the data base and our knowledge of structural changes are essential to 
understanding the impacts of present Federal policies and programs 
and the development of rational policies that will facilitate the kind of 
structure in the farming sector that best serves the Nation. 

Even the limited data we have on corporate farms, for example, do 
not really distinguish between those that are family owned and those 
managed by very large corporations. Further, there is no wa}~ to iden- 
tify farms operated by hired managers. 

Current data do not reveal characteristics of farmers or farm people 
having low or high total personal income, statistics essential for gaug- 
ing the economic well-being of farmers. Data on nonfarm ownership 
of farmland do not reveal the characteristics of these owners, retired 
farmers, corporations, banks, etc. Collected, but not yet available from 
the census, is a tabulation of the numbers and characteristics of farms 
hiring more than 1.5 person years of labor. 

CONCLUSIONS 

Aggregate farm statistics mask a wide variety of situations and 
needs in the U.S. farm sector. Viewed in a more disaggregated fashion, 
a clearer indication of the heterogenity and multiplicity of the prob- 
lems becomes evident. To illustrate, at the risk of oversimplification, 
we grouped farms into three sizes: large farms (over $100,000 sales), 
moderate size farms ($20,000 to $100,000 sales), and small farms 
(under $20,000 sales). Even in the largest group, "family farms" pre- 
dominate, although some are incorporated. But the income and re- 
source needs differ among the groups, suggesting that public policies 
developed for the sector as a whole may not be fully and effectively 
meeting some of these needs. 

To generalize, farms in the larger group do not have a persistent 
low-income problem. By and large, their incomes are substantial, 
especially when combined with nonfarm income and capital gains. 



Furthermore, rates of return on their investments are competitive with 
those in the nonfarm economy. These larger farms are not without 
problems, however. They tend to be more highly leveraged in terms 
of debt and thus more vulnerable to price instability and the resultant 
fluctuation in cash flow. Thus, this group, the 6 percent of our farms 
which produce over half of the farm products, have more stake in price 
stabilization policies than in income support policies. 

The second group, the moderate size farms, has a greater stake in 
income stabilization (deficiency payments and target prices) and price 
enhancing aspects of farm programs. These farms depend heavily on 
farm income and are in a competitive struggle with larger farms. 

Small farms are the most numerous (70 percent of total), but account 
for only a tenth of total farm sales. As a group, operators and families 
on these farms receive considerably more income from nonfarm than 
from farm sources. But this group includes a large proportion of re- 
tired, part time, hobby, and other farmers who have adequate or 
greater incomes from other sources. It also includes a significant num- 
ber of persons who live in or near poverty. Data now available do not 
permit delineating those pursuing farming with the intent of doing so 
as a primary livelihood. 

Available data and studies show there are relatively few larger-than- 
family corporation farms. They produce a still small but significant 
proportion of total farm product, and tend to be concentrated (and 
thus have a relatively greater impact) in certain specialized commodi- 
ties and in California, Texas, and Florida. 

The single most important source of growth in farm sizes has not 
been corporate takeovers, but consolidation of additional land into 
existing farms. This has led to the concern being voiced that the single 
greatest threat to the "family farm" is other "family farms." In recent 
years approximately three-fifths of the land changing ownership has 
been added to the existing, predominately family farms. 

There are several incentives for consolidation and farm enlarge- 
ment. First, certain production efficiencies and economies accrue to 
increasing size. Most of such economies are achieved with a size of 
operation that can be operated with one person's labor, plus some 
additional seasonal labor, plus a modern complement of equipment 
and technology. The actual size at which these economies are realized 
varies greatly by type of crop or livestock produced, by geographic 
icgion, and by the technology used. Beyond this, further incentives 
for growth stem from pecuniary economies — economies of buying, 
selling, tax benefits, improved access to capital, and simply the desire 
for more net income. 

There are new entrants to agriculture each year. They too reflect 
the overall trends. Data, primarily from lending institutions, show 
today's new entrants have access to substantial amounts of debt 
capital, earn substantial off-farm income, and start with larger than 
average operations. One explanation is that they have a choice of 
occupational alternatives. Those that choose to enter farming do so 
only if they have the management ability and access to the capital 
required to support an operation large enough to provide them an 
income (or a combined financial attraction) competitive with their 
nonfarm opportunities. The traditional "farm ladder" — starting as a 
hired farm worker, then tenant farmer, then a small owner-operator — 
i no longer a major route for new entrants. Moreover, the large 



capital requirements for getting started in farming means that new 
entrants or their families tend to be wealthier than the average person 
or family. Thus, the market selection process for new entrants abets 
the trends to fewer and larger farms. 

For the farm sector as a whole, over time, there has not been a 
shortage of capital or credit. Stabilization and risk minimization pro- 
visions of farm programs have induced competitive capital flows from 
commercial lending institutions. In addition, the Farm Credit System 
and the Farmers Home Administration tap the general money markets 
and lend to farmers exclusively. The aggregate ratio of debts to assets 
has not increased greatly and is below that for many other economic 
sectors. However, the aggregate data can mask the problems of in- 
dividual farmers in obtaining credit. These problems are particularly 
acute among low resource, smaller farmers. 

As farming continues to become increasingly capital intensive, 
many farmers rely less on internal financing (saving and depreciation) 
and more on lending institutions, depend more on purchased input-, 
are heavily in debt, and have high debt-to-income ratios. Thus, they 
are more vulnerable to cash flow problems when farm product prices 
fail. Furthermore, in general, the larger the farm and the newer the 
farmer to fanning, the higher the relative level of debt financing and 
the greater the vulnerability to unstable (especially lower) prices and 
the resultant cash flow problems. Thus, many of the fanners who had 
serious cash flow problems because of low grain prices in late 1977 
and early 1978 have, over the past 5 years, nevertheless accrued farm 
and nonfarm incomes (plus capital gains) for a total financial well- 
being considerably above average nonfarm incomes. However, they 
must overcome each occurrence of the cash flow problem or be forced 
to liquidate assets and cease or reduce farming operations. 

Farmers, and the structure of the farm sector, are increasingly 
affected by developments in the general economy. In addition to the 
obvious impacts of developments in money markets, the farm sector 
is very significantly affected by inflation and fiscal policies. Inflation 
affects income and wealth redistribution by, on the one hand, intensi- 
fying the cost /price squeeze for farm operators (when prices of things 
farmers buy rise faster than the prices of things they sell), while on 
the other hand, inflating the value of land, thereby increasing the 
wealth of landowners and landlords relative to tenants. The compre- 
hensive impacts of inflation on structure are not known but likely 
increase the difficulty of entry and speed the process of consolidat on 
by present owners, especially larger ones, who can use the new wealth 
created by inflation to purchase additional land. 

Land price inflation also creates problems with intergenerational 
transfers. Present provisions of inheritance tax laws, combined with 
the capital gains tax structure, may serve as a disincentive to sell 
land. This poses the potential, if unchecked, for the eventual emer- 
gence of a "landed class" with attendant implications for tenure 
arrangements and the distribution of benefits (especially those that 
tend to get capitalized into asset values) from farm price and income 
policies. 

There is also a structural impact from fluctuations in the general 
economy. A strong economy with low levels of unemployment offers 
small farmers a chance to supplement farm income with nonfarm in- 
come. At the same time, alternative job opportunities induce many 



6 

small farmers to quit farming altogether and discourage potential 
new entrants. 

The cumulative and longer run impacts of present farm commodity 
programs on family farms versus the very large farms and on the 
structure of the entire farming sector are not well known. While some 
provisions of the 1977 farm act, such as payment limitations and the 
special wheat, hay, and grazing allowances, tilt benefits to smaller and 
moderate size farms, other provisions such as the specifications for cost 
of production estimates used in setting target prices could have struc- 
tural impacts not intended by the Congress. But more study is needed 
of the specifics of farm commodity programs and their likely net 
impacts. 

A broad array of programs and policies affect the structure and pro- 
ductivity of agriculture. These include commodity programs, resource 
policies, food policies, environmental policies, international policies, 
and monetary and fiscal policies. While some are directed specifically 
to agriculture, the impacts of others are incidental or indirect. None 
of the programs and policies that affect the agricultural sector operate 
independently of other programs and policies. This interdepend ency 
may cause specific programs not to achieve their intended objectives, 
or to impair the effectiveness of other programs. The structure, pro- 
ductivity, and well-being of the farm sector is not determined by any 
one program or policy, but rather by the cumulative effect of many 
programs and policies interacting with technological, market, and 
natural forces. 

RESEARCH AGENDA 

To address the concerns reflected in title I, sec. 102, of the 1977 
act, a number of research projects which will contribute directly to 
improved understanding of changes occurring in the structure of the 
farming sector must be undertaken. Several other research efforts, 
initiated by other purposes, should also yield data and insight rele- 
vant to farm structure issues. As results of these studies become avail- 
able they will be included in special reports as well as in future annual 
family farm reports to the Congress. 

The proposed "family farm" research agenda includes, but is not 
limited to, study of the following topics: 

Direct and indirect impacts of past and current farm com- 
modity programs and policies on the structure and organization 
of the farm sector. This includes near-term and long-term struc- 
tural impacts of price and income support programs, payment 
limitations, grain reserves, economic and natural disaster insur- 
ance and credit programs, alternative means of determining 
price and income support prices, and the current plantings con- 
cept versus acreage allotments. The research issue, at least in 
part, is whether ultimately the benefits and impacts of such 
programs are consistent with the intentions. 

Impact of tax policies on structure and organization of the 
farm sector. Specifically, how do Federal tax policies affect 
investment patterns and capital st met ore, entry of nonfarm and 
foreign investors into the farm sector, the competitive position 
of large versus small farms, intergenerational transfer of farm 
assets, and the resulting implications for continuity of family 
farming operations, concentration of land ownership, and means 
of obtaining access to land services by new or young farmers. 



Reexamine concepts and update studies of economies of 
farm size. Includes economies resulting from efficient use of 
existing technologies and resources available to individual farm- 
ers. Also, includes economies of buying and selling related to 
size, and the extent to which size is related to market access, 
access to capital and credit, and quality of management. Also, 
addresses the roles of alternative institutions such as cooperatives 
for providing small farmers access to many of the economies 
available to larger farmers. 

Closely related to the study of economies of size is evaluation 
of impacts of present and emerging technology on the structure 
of agriculture and the competitive position of small versus large 
farmers. The potential for refocusing technological development 
to improve the efficiency and competitive position of small and 
moderate size farms must be evaluated. 

Factors affecting the changing financial and capital structure 
of agriculture and what these changes mean for the structure and 
organization of the farm sector. Includes the impacts of credit 
institutions including public and quasi-public credit institutions 
and Federal farm credit policies. 

Impacts of present and alternative regulatory policies and 
programs on economies of size in farming and on the competitive 
position of various sizes and types of farms. Includes studies of 
regulations relating to environmental quality, pesticides, health 
and safety, food quality and safety, and grades and standards. 
Research will address the individual as well as the cumulative 
effects of regulations on farm business organizations, economies 
of size, and location of production. 

Short-term and long-term impacts of inflation on the structure 
and organization of agriculture. Research will address how infla- 
tion affects the competitive position of agriculture and various 
groups within agriculture over the long run. Attention will be 
given to the distribution of benefits and losses as well as struc- 
tural impacts from inflation. 

Factors affecting land prices and the influence, in turn, of land 
price inflation on the structure of the farm sector and the future 
on the family farm. 

Implications of trends toward separation of use and ownership 
of land and other farming resources. Includes forces leading to 
specialization in ownership of land and other capital assets by 
some and specialization in the use of services of those assets to 
farm by others. Also includes study of how such developments 
affect tenure and size structure in the farm sector. 

Implications of transportation policies and developments for the 
location of agricultural production and storage and the competitive 
position of various types and sizes of farming. 

Impacts of farm size regulations on Federal irrigation projects. 
How do alternative farm size regulations bear on efficiency of pro- 
duction, economic health of the farm sector and the closely related 
economic infrastructure, employment opportunities, and the 
economic health and viabilit}^ of rural communities? 

Special small farm studies are being considered : characteristics 
of small farm operator families, particularly those in need of public 
assistance to improve their well-being; analysis of conditions under 
which rural industrialization, technical assistance, public sector 



8 

employment, et cetera, would be most effective in helping small 
farmers improve their economic well-being; and improvement in 
cooperative development programs to assist small farmers. 

Long-run effects of public research and education programs in 
agriculture. 

The ownership of farmland factors affecting patterns of owner- 
ship, and the impacts of alternative ownership patterns on charac- 
teristics of family farms, opportunities for entry and exit, forms 
of tenure, and the structure and organization of the farm sector. 
Impacts of alternative policies and developments affecting 
energy use and cost. 

Special analyses of corporate farms, partnerships, and contract 
farming from data provided by followup surveys to the 1974 
Census of Agriculture. 

Analyses of market imposed determinants of farm structure, 
organization and size. Includes the impacts of input and product 
market requirements for volume, quality, and regularity of pro- 
duct flows on farm size and organization; and studies of the com- 
parative costs, efficiencies and performance of closely coordinated 
industrialized farming operations versus traditional independent 
farming operations. 
This research agenda represents those studies that should be under- 
taken to provide the needed information on this issue. Realistically, 
not all can be undertaken at one time. However, to avoid fragmenta- 
tion, we will make a special effort to see that the various projects 
undertaken in the Department are coordinated, cumulative, and when 
completed provide greater insight into the overall problem. Addition- 
ally, we will make an effort to cooperate with other organizations in 
the conduct of this research to avoid duplication and to gain greater 
understanding. 



1,202 


213 


1,176 


297 


1,102 


274 


1,078 


394 


1,075 


397 


1,072 


400 



Trends in the Farming Sector 
number and size characteristics of farms 

There were 6.8 million farms in 1935. The number has declined 
steadily ever since — to 5.6 million in 1950, then to 2.7 million in 1977. 
In this decade, the rate of decrease has slowed from 2 percent to just 
over 1 percent per year. 

The land area in farms has also decreased, but at a much lower rate. 
Thus, there has been a rapid increase in the average size of the re- 
maining farms. 

CHARACTERISTICS OF U.S. FARMS 

Land in 

farms Average 

Number (in millions size (acres 

of farms of acres) per farm) 

Year: 

1950. 5,648.000 

1960. ._ 3,963,000 

1970.. 2,949,000 

1976 2,738,000 

1977 2.705,000 

1978i 2.680,000 

i Preliminary. 

Average size, reflecting the variation in types of farming, varies 
among regions of the country. 

REGIONAL AVERAGE FARM SIZES AND SALES, 1974 

Average value 

Average size of products 

Region (acres) sold (dollars) 

New England.. 

Middle Atlantic 

East North Central 

West North Central 

South Atlantic 

East South Central 

West South Central 

Mountain 

Pacific. 

Source: 1974 Census of Agriculture. 

Another commonly used measure of farm size, cash receipts, also 
reflects increases in farm size. Average cash receipts per farm increased 
from $8,882 in 1960 to $36,752 in 1977. In constant (1967) dollars, 
the growth rate was less ($9,349 in 1960 to $20,083 in 1977), though 
still substantial. 

Size distribution. — Measured by value of sales, farms with sales of 
$40,000 and over are increasing, while those with sales below $40,000 
declined from 1970 to 1977. Farm sizes measured by sales average 
largest in the Pacific Region ($84,148 in 1974). 

(9) 



206 


44, 200 


178 


31,295 


202 


30. 099 


477 


40,113 


2C6 


28,773 


175 


14,825 


582 


31,427 


2,262 


60. 964 


567 


84, 148 



10 

FARM NUMBERS, BY SALES CLASS, 1970-77 











Sales (in 


thousands) 












$103 (and over) 


$40 to 


$100 


$20 to $40 


Less than $20 






















Totar 
farms 




Number 


Percent 


Number 


Percent 


Number 


Percent 


Number 


Percent 


Year: 




















1970. 


57 


1.9 


178 


6.1 


326 


11.1 


2,388 


80.9 


2,949 


1971 


63 


2.2 


187 


6.4 


322 


11.1 


2,330 


80.3 


2,902 


1972 


82 


2.8 


217 


7.6 


321 


11.2 


2,240 


78.4 


2,860 


1972 


137 


4.8 


311 


11.0 


3.9 


11.7 


2,046 


72.5 


2,823 


1974 


150 


5.4 


331 


11.8 


328 


11.7 


1,986 


71.1 


2,795 


1975 


140 


5.1 


314 


11.3 


323 


11.7 


1,990 


71.9 


2,767 


1976 


157 


5.7 


341 


12.5 


323 


11.8 


1,917 


70.0 


2,738 


1977 


162 


6.0 


348 


12.9 


321 


11.9 


1,875 


69.2 


2,706 



The problem in using sales as a measure of size is inflation; sales 
may overstate the apparent increase in the number of larger farms. 1 



FARM OUTPUT 



Cash receipts from farming increased 180 percent from 1960 to 
1977. In real terms (1967 dollars), the increase was only 47 percent. 



CASH RECEIPTS FROM FARMING 
[In millions of dollars! 



Cash receipts 



Nominal Real (1967) 
dollars dollars 



Year: 
19S0. 
1970. 
1972. 
197:!. 
1974. 
1975. 
1976. 
1977. 



35.2 


37.0 


54.8 


49.8 


65.8 


52.6 


90.5 


50.5 


94.0 


49.0 


90.2 


48.8 


96.6 


51.9 


99.5 


54.4 



Total farm cash receipts are becoming increasingly concentrated on 
large farms. In 1960, 0.6 percent (23,000 farms with sales of over 
$100,000) of the farms accounted for 17 percent of farm receipts. By 
1977, 6 percent (162,000 farms with sales of over $100,000) of all farms 
accounted for 53 percent of farm receipts. Farms with soles of $20,000 
to $100,000, 25 percent (669,000) of the farms in 1977, received 37 
percent of sales receipts. The largest change took place in the soles 
category of $20,000 or loss: In 1960, they numbered 91 percent of the 
farms and accounted for 49 percent of farm receipts; in 1977, they 
were 96 percent of all farms but accounted for only 11 percent of farm 
receipts. 

Inflation also distorts these data, overstating the increase in con- 
centration. Concentration ratios (percentage of sales controlled by a 
given number of farms), not influenced by inflation, show the largest 

1 A recent stu ly conclud ■<! that 80 percent of the apparent increase in the number of farms between 1969 
and 1974 with Bales '■! $100,000 and over a. is due to Inflation. William W. I. in and Peter M. Emerson. " Price 
Inflation and Changes in Farm Numbers by Economic Class" (mimeo). Washington, D.C.; National 
Economic Analysis Division, ESC8, I BDA, 1977. 



11 

50,000 farms having 23 percent of the receipts in 1960 and 36 percent 
by 1977. 

Livestock and poultry production is more concentrated than crop 
production. In 1969, farms with sales of $100,000 and over accounted 
for 29 percent of crop sales, but 38 percent of livestock and poultry 
sales from all farms with sales of $2,500 or more. In 1974, farms in this 
sales class had 51 percent of the crop and 57 percent of the livestock 
and poultry sales. 

MEASURES OF CONCENTRATION OF FARM RECEIPTS— SELECTED YEARS 
[Percent of farm receipts] 





Sales class (thousands) 




Concen 


tration of rece 


ipts 






$100 and 
over 


$20 to 
$100 


Less 

than $20 


Largest 
50,000 
farms 


Largest 

200,000 

farms 




Largest 

1,000,000 

farms 


Year: 

1960... 

1967. 

1970.. 

1977. 


17.3 

28.1 

33.4 

52.6 


34.0 

40.1 
41.6 
36.7 


48.7 
31.7 
25.0 
10.7 


23 
30 
NA 
36 


40 
50 
NA 

63 




77 
85 
NA 
93 



PROPORTION OF FARMS AND SALES BY COMMODITY, 1969 AND 1974 



Commodity 



Percent of commercial farms Percent of commodity sales 
producing commodity with from farms with sales of 
sales of $100,000 and over $100,000 and over 



1969 


1974 


1969 


1974 


NA 


NA 
10.3 
3.3 


29.1 
13.0 
8.8 


51.4 


2.6 


42.0 


.8 


20.2 


3.9 


17.1 


32.8 


67.3 


2.4 


8.2 


21.1 


39.9 


6.4 


24.3 


51.1 


81.9 


7.3 


17.4 


67.9 


82.0 


6.1 


12.7 


48.4 


65.0 


13.0 


17.0 


70.1 


78.2 


NA 


NA 


37.6 


57.2 


5.8 


16.4 


54.3 


79.3 


1.8 


8.3 


16.4 


36.1 


1.9 


i"8.~5" 


15.5 




3.1 


50.7 


165.0 


2.5 


9.5 


15.4 


37.9 


4.4 


7.9 


30.7 


54.3 


3.0 


9.0 


34.4 


54.2 



Crops... 

Grain 

Tobacco. 

Cotton 

Fieldseeds, forage, and silage 

Other field crops... 

Vegetables 

Fruits 

Nursery and greenhouse 

Livestock and poultry... 

Poultry and poultry products. 

Dairy products. 

Dairy cattle and calves. 

Other cattle and calves 

Hogs, sheep, goats 

Other livestock and products. 
All agricultural products 



1 1974 Census of Agriculture combined all cattle and calf numbers. 
Source: 1969 and 1974 Census of Agriculture. 



FARM INCOME 

Net farm income for all farms increased 42 percent, from $14.1 
billion to $20.1 billion, from 1970 to 1977, with a record high of 
nearly $30 billion in 1973. Over time, the aggregate increase has 
accrued to fewer and fewer claimants. Net income is also increasingly 
concentrated among the larger farms. In 1960, 6 percent of net farm 
income accrued to the largest farms. Mid-size farms received 28 per- 
cent and the smallest farms 67 percent. 

By 1970, the distribution had shifted to 16, 46, and 38 percent. In 
1977, the distribution was 31, 48, and 21 percent. 



12 

DISTRIBUTION OF NET FARM INCOME BY SALES 







$100, 000 


$20, 000 to 


Less than 




All farms 


and over 


$99,000 


$20, 000 




(billions) 


(percent) 


(percent) 


(percent) 


Year: 










1960 


511.1 


6.4 


27.6 


65.9 


1970 


14.1 


16.3 


45.7 


37.8 


1976 


21.1 


34.0 


45.9 


20.0 


1977 


20.1 


30.8 


47.9 


21.2 


19781 


25.0 


NA 


NA 


NA. 



i July 1978 forecast. 

Off-farm income is increasingly important to farmers, especially to 
those in the lower sales classes. As a proportion of total income to 
farmers and their families, off-farm income increased from 43 percent 
in 1960 to 61 percent in 1977. Off-farm income is larger as a propor- 
tion of total income for small farms than for larger farms; it comprises 
over half of total income on farms with less than $20,000 in sales. On 
many of these small farms, fanning is a preferred way of life made 
possible by oif-farm income. On others, it supplements farm income 
enabling the operator to become established in farming, but there are 
many small farmers with no or very small amounts of nonfarm income. 

The source of this off-farm income varies across sizes of farms. On 
smaller farms, it usually is wages from nonfarm jobs, while rents, 
dividends, and interest are the important sources on larger farms. 

ASSETS IN THE FARMING SECTOR 

Assets were valued at $709 billion in January 1978; they had in- 
creased nearly $500 billion since 1960. Real estate is by far the largest 
component of farm assets (75 percent in 1978). Other physical assets 
comprise 20 percent and financial assets make up the remaining 5 
percent. 

Real estate has also increased the most rapidly, an average of 16 
percent per year between 1960 and 1978. The average annual increase 
for all assets was 13 percent during the period. Real estate, the only 
component to increase as a proportion of total assets from 1960 to 
1978, accounted for 78 percent of the total increased value of farm 
assets. The rise slowed to 8.7 percent in 1977, half the annual 1970-77 
average. 

Farm assets are not as highly concentrated on large farms as are 
receipts. The largest 6 percent of the farms accounted for 28 percent 
of the sector's total assets, compared with over 52 percent of the 
receipts. Farms with less than $20,000 sales had over a third of the 
total assets, but obtained only 10 percent of the receipts. 

Farms in the $100,000 and over sales class increased their share of 
all types of assets between 1970 and 1977. Shares held by the mid- 
size farms remained relatively stable, while those held by t ho smaller 
farms declined. Again, because of the distortion of inflation, com- 
parison of assets held by each r-nles class in 1970 and 1977 overstates 
the increase of asset concentration. 



13 



OFF-FARM AND TOTAL INCOME 
PER FARM OPERATOR FAMILY 

By Value of Sales Class, Selected Years 



INCOME (THOUS.) 

50 - 



Farm income 
Off farm income 



Value of Farm Sales 
1A $ 100.000 and over 
1B 40.000 99.999 - 
20.00039.999 
10.00019.999 
5.000- 9.999 _ 
2.500 4.999 
Less than 2,500 
All farms 




1234567 1A1B 234567 1A1B 234567 1A1B 234567 

1960 1970 1976 1977 

* Sates class 1A and IB not separately identified in 1960. 



TOTAL ASSETS OF THE FARMING SECTOR, JAN. 1, SELECTED YEARS 



1960 



1970 



1977 



1978 





Value 
(billions) 


Percent 


Value 
(billions) 


Percent 


Value 
(billions) 


Percent 


Value 
(billions) 


Percent 


Real estate. _ 


$137.2 
15.2 

22.7 
7.7 

9.2 
18.1 


65.3 
7.2 

10.8 
3.7 

4.4 
8.6 


5215.8 
23.5 
32.3 
10.9 

9.6 
22.8 


68.5 
7.5 

10.3 
3.5 

3.0 
7.2 


5433. 8 
29.1 
72.3 
22.0 

14.4 
33.2 


73.9 
4.4 
11.0 

3.4 

2.2 
5.1 


$525. 8 
32.0 
77.3 
24.6 

14.5 
34.6 


74.2 


Livestock and poultry 

Machinery and motor vehicles. 
Stored crops 

Household equipment and 
furniture 


4.5 
10.9 
3.5 

2.0 


Financial instruments 


4.9 


Total ?____ 


210.2 


100.0 


314.9 


100.0 


654.8 


100.0 


703.9 


100.0 



i Preliminary. 

2 Individual items may not add to totals due to rounding. 



DISTRIBUTION OF FARM ASSETS BY VALUE OF SALES, 1970 AND 1977 









Value of sales 






Asset 


$100,000 and over 
1970 


(percent) 
1977 


520,000 to 5100,000 (percent) 
1970 1977 


Less than 520,000 (percent) 
1970 1977 


Real estate 


15.1 
14.0 
23.2 
15.4 


27.2 
26.1 

41.4 
27.7 


35.3 
38.7 
34.5 
36.1 


37.6 
40.4 
29.6 
37.8 


49. 6 35. 2 


Nonreal estate, physical 

Financial 


47. 3 33. 5 
42. 3 29. 


All 


48. 5 34. 5 



Inflation has been the major contributor to the increased value of 
farm assets, adding- 96.7 percent of the $54.1 billion increase in value 
between 1977 and 1978. In real terms, the value of farm assets was only 
6.6 percent higher on January 1, 1978, than in 1960. 



14 

Value appreciation, particularly of land, produces significant capital 
gains in the farming sector. From 1971 to 1976, capital gains exceeded 
net farm income. In 1976, capital gains to farm operators averaged 
$15,872 per farm; with income from all sources, the overall income and 
wealth gains per farm were 834,670, compared to $14,185 in 1970. The 
proportion of these capital gains accruing to farm operators increased 
from 65 percent in 1960 to 70 percent in 1976. The remainder accrued 
to nonfarmer landlords. 

Operators of large farms own a smaller percent of their assets than 
do small farm operators. Thus, they receive a smaller share of total 
capital gains accruing to their sales class. Farmers with sales of $100,- 
000 and over in 1976 received 67 percent of the capital gains on farm 
assets, while operators of farms with less than $2,500 sales received 
85 percent. Capital gains, of course, do not add to cash incomes until 
the assets are sold. And, even though a farmer's net worth may increase 
from capital gains, serious cash flow problems may still be encountered 
in periods vdien production costs are increasing relative to farm prod- 
uct prices. Capital gains do alter the balance sheet (increase the sector's 
equity ratio) and thus provide security (collateral) against which 
farmers may borrow for expansion or other purposes. 

Ccmmercial agriculture in the United States requires extensive 
amounts of debt financing. Farm debt outstanding as of January 1, 
1978, was $120 billion, increasing at an average annual rate of nearly 
16 percent during the 1970's. 

FARM SECTOR LIABILITIES, JAN. 1. SELECTED YEARS 
[In billions of dollars] 

Liability 1960 1970 1977 1978 » 

Real estate debt 12.1 29.2 56.6 64.2 

Nonreal estate debt to: 

CCC 1.2 2.7 1.0 4.5 

Other reporting institutions... 6.7 15.8 37.8 42.7 

Nonreporting creditors.. 4.8 5.3 7.3 8.3 



Total debt... 24.8 53.0 102.7 119.7 

Proprietor's equities... 185.4 261.9 552.1 589.2 



Total 210.2 314.9 654.8 708.9 

» Preliminary. 

Proprietor's equities in farming and farm debt have increased at an 
average annual rate of 15.6 percent since 1970. In 1977, however, 
equities increased only 6.7 percent while total debt was up 16.6 percent. 

Federal land banks, the Farmers Home Administration, life in- 
surance companies, commercial banks, and individuals are the major 
holders of the farm real estate debt. The nonreal estate debt i< largely 
held by commercial banks, production credit associations, the Farmers 
Home Administration, individuals, and the Commodity Credit 
Corporation. 



15 



DISTRIBUTION OF FARM DEBT BY SOURCE 
[In percent] 



Type and source 



1970 



1977 



1978 



Real estate debt: 

Federal land banks... .- 

Farmers Home Administration 

Life insurance companies 

Commercial banks 

Individuals and others. 

Nonreal estate debt: 

Commercial banks 

Production credit associations 

Federal intermediate credit banks. 

Farmers Home Administration 

Individuals and others 

Commodity Credit Corporation 



22.9 


32.6 


33.4 


7.8 


6.6 


6.2 


19.6 


13.1 


13.6 


12.1 


12.0 


12.1 


37.5 


35.8 


34.7 


43.3 


50.5 


46.3 


18.9 


26.6 


24.3 


.9 


.8 


.7 


3.3 


4.1 


5.7 


22.4 


15.8 


14.9 


11.2 


2.2 


8.1 



Important features of the agricultural capital markets during the 
1970's are the growth of Federal land banks over the entire period 
and the recent resurgence of life insurance companies as major lenders. 
Life insurance companies increased their holdings of farm real estate 
debt by 10 percent in 1976 and 17.6 percent in 1977, after being 
rather inactive in the farm lending business during the early 1970's. 

The debt to asset ratio of the farming sector increased from 11.8 
percent to 16.8 percent between 1960 and 1970. Since 1970, it has 
been stable at 16 to 17 percent. Larger farms have significantly 
higher debt to asset ratios than do small farms, largely because of 
their greater reliance on borrowed capital for production expenses 
and expansion. 

SECTOR DEBT TO ASSET RATIOS BY SALES, CLASS, SELECTED YEARS 
(In percent] 



Sales 



1970 



1975 



1977 



$100,000 and over . 
$40,000 to S100.000. 
$20,000 to ^0,000. . 
$10,000 to $20,000.. 
$5,000 to $10,000... 
$2,500 to $5,000..... 
Less than $2,500... 
All farms 



24.6 


30.2 


27.0 


21.4 


15.4 


15.0 


18.4 


13.2 


13.6 


17.0 


10.6 


11.0 


13.5 


8.2 


8.6 


8.6 


5.5 


5.8 


8.4 


4.6 


6.3 


16.8 


15.9 


15.7 



Farmers under 35 years of age generally have more debt than the 
average for all farmers, reflecting the large use of debt financing in 
becoming established. For 1976, approximately one quarter (14,000 
loans) of the Federal land bank individual loans were made to A'oung 
farmers for almost $1 billion. This higher level of indebtedness makes 
young farmers more vulnerable to adverse production and price 
conditions. 

Information on young farmers is very limited. Lending institutions 
are virtually the only source of data. According to information from 
the Farm Credit Administration, the typical young FLB farmer 
borrower in 1976 was 29 years old, operated 738 acres, had assets 
of $355,000 with debts of $147,000, had net farm income of $27,000 
and nonfarm income of $20,000. 



16 

CHARACTERISTICS OF ALL BORROWERS COMPARED TO YOUNGER BORROWERS, 1975 



Characteristics 



All borrowers 


Young borrowers 


44 


29 


499, 486 


355, 056 


176,213 


146, 720 


323, 273 


208, 336 


35 


41 


54 


70 


23,382 (74) 


20, 133 (73) 


30, 643 


26, 691 


908 


738 


295 


235 


852(44) 


758 (47) 


455 (50) 


360 (37) 


36,641 


31,955 


143,243 


112,058 


150, 259 


116,365 


79, 079 


65, 347 


63, 593 


55, 455 


8.68 


8.68 


27 


23 


57 


60 


55 


58 



Of borrowers: 

Age (years)... 

Assets (dollars). 

Debts (dollars).. 

Net worth (dollars) 

Debt/asset ratio (percent) 

Debt/net worth ratio (percent). . 

Net nonfarm income (dollars) '. 

Net farm income (dollars) 

Of farming operation: 

Acres farmed.. 

Acres in security 

Acres rented i 

Acres other land owned J 

Building value (dollars) 

Appraised value (dollars) 

Market value (dollars) 

Of loan: 

Loan amount 

New money. 

Rate (percent) 

Terms (years).. 

Loan/appraised value (percent). 

Loan/market value (percent)... 



i Averages based on borrowers reporting attribute. Percent reporting shown in parentheses. 

Source: Farm Credit Administration. "Characteristics of Federal Land Bank Loans, 1976." Statistical Bulletin 17, 
Washington, D.C. Research Division, FCA, November 1977. 

RETURNS TO EQUITY IX FARMING SECTOR 

The rate of return on equit} r capital in farming has traditionally 
been low, fluctuating between 3 and 4 percent during 1960 to 1977. 
The exception was the three atypical years 1972-74, when returns to 
equity reached 10 percent in 1973. The rate of return is considerably 
higher for large farms than for small farms. Although this is a widely 
accepted measure of economic well-being throughout the economy, 
detailed data by farm size, type, and other characteristics are not 
available on a continuing basis. Rates of return to equity capital by 
value of sales class and region are available for 1970. 

RATE OF RETURN TO FARM EQUITY CAPITAL, UNITED STATES AND 10 REGIONS, 1970 







Sales class (in thousands of dollars) 








Item 


100 and 
over 


40 to 
100 


20 to 
40 


10 to 
20 


5 to 
10 


2.5 to 
5 


Less than 
2.5 


All 
farms 


United States: 

Net returns to equity 

(percent) 

Capital gains 


6.9 
3.9 


5.9 

3.7 


4.4 
3.5 


2.9 
3.4 


-0.1 
3.3 


—6.5 
3.2 


-6.1 
3.3 


2.1 

3.5 


Total 

Region:' 

Northeast 


10.8 

7.6 
9.1 
6.3 
5.6 
8.0 
10.7 
11.9 
6.2 
8.6 
4.2 


9.6 

6.4 
8.4 
6.1 
5.1 
6.4 
7.1 
9.7 
5.4 
5.4 
2.0 


7.9 

4.5 
8.1 
4.8 
3.9 
3.6 
2.1 
5.7 
4.1 
4.2 
1.2 


6.3 

.9 
5.7 
3.0 
2.4 
2.5 
—.3 
2.3 
3.7 
3.3 

.2 


3.2 

-2.3 

-2.6 

—.2 

1.9 

-2.0 

—1.2 

1.5 

1.6 

1.9 

-1.7 


-3.3 

—14.7 
-11.2 
-3.9 
-7.3 
—5.3 
-9.4 
—3.3 
—4.8 
—3.9 
—10.9 


-3.2 

-10.8 
—13.3 
—10.0 
—7.0 
-2.0 
-4.8 
—2.7 
—4.4 
-5.1 
-5.5 


5.6 
.2 


Lake States .. 


2.3 


Corn Belt 


2.6 


Northern Plains 

Appalachian 

Southeast 

Delta States 


2.6 

.4 

1.8 

4.5 


Sojthern Plains 

Mountain 

Pacific 


1.9 
3.2 

.8 



* Does not include capital gains. 

Source: Bruce Hottel and Robert Reinsel. "Returns to Equity Capital by Economic Class of Farm." Agricultural Economic 
Report No. 347. Washington, D.C: Economic Research Service, U.S. Department of Agriculture, 1976. 



17 



TENURE 



A major change in tenure has been the rise of the part owner who 
combines the security of an owned unit with the economies of size 
provided by rental units to obtain a viable operating unit. 



FARM TENURE PATTERNS, UNITED STATES 
[In percent] 





1940» 


19591 




1974 


Tenure 


Farms Land in farms 


Farms Land 


in farms 


Farms Land in farms 


Full owner 

Part owner. 


51.2 42.4 
10.1 28.2 
38.8 29.4 


57.7 
21.9 
20.5 


34.2 
49.7 
16.0 


61.5 35.4 
27.2 52.6 


Tenants. 


11.3 12.0 



i Includes farms operated by managers. 
Source: Census of Agriculture. 

Farms operated by part owners have larger acreages than farms 
operated by full owners or tenants. The share of land in farms operated 
by part owners is considerably greater than the proportion of all 
farmers. Over half the land is now farmed by part owners while less 
than one-tenth of all land is farmed by full tenants. 

In 1969, the owner farmed 6 of every 10 acres of land. Three-fourths 
of this owner-operated farmland was owned by individuals; the 
remainder by corporations and partnerships. Of the 376 million acres 
rented, 16 million acres were owned by corporations and 40 million 
acres were rented from farm operators. 

LAND IN FARMS OWNED AND RENTED BY FARM OPERATORS, UNITED STATES 
[In percent] 

Rented farm 

from Land managed 
Owned nonfarmers for others 

Year: 

1950 

1954 

1959. 

1964. 

1969 

1974.. 

Source: Census of Agriculture. 

THE FARM LABOR FORCE 

The farm work force decreased 58 percent between 1950 and 1977. 
This reflected technological innovation and increasing mechanization, 
along with the decline in the number of farms. Since 1950 the propor- 
tion of hired persons in the farm work force has trended upward. 
That is partly explained by the shift in composition to a higher pro- 
portion of young, seasonal workers, mostly students. Several of these 
would be required to make one full-time equivalent. The increase in 
student participation is underscored by the increase during the 1965- 
74 decade in the proportion of youth in the hired agricultural labor 
force. Workers under age 25 accounted for about 56 percent of the 
1974 nonmigratory and 62 percent of the migratory labor force. By 



61.8 


28.6 


9.6 


62.3 


28.6 


9.1 


59.4 


30.2 


10.4 


58.0 


31.3 


10.7 


67.9 


32.1 


NA 


67.5 


32.5 


NA 



18 

comparison they accounted for less than one-fourth of the total civilian 
labor force. 

The small hired labor force indicates that much of the farm work 
is still done by the operator and family. Only one-third of the farms 
reported use of hired labor, and the labor still averaged only $5,600 
per farm in 1974. Only 5 percent of agricultural employers had a pay- 
roll that exceeded $20,000. This would approximate about 4 full-time 
employees. In California where the agriculture is labor intensive, only 
22 percent of emp^ers had payrolls over $20,000. In Florida, the 
second major user of hired farm labor, 11 percent of the employers 
had payrolls over $20,000. In short, the changing size and composition 
of the hired farm labor force do not suggest big changes in the family 
farm pattern of labor use. 

FORM OF BUSINESS ORGANIZATION 

Sole proprietorship or single-owner farms accounted for nearly 90 
percent of the farms with sales of $2,500 and over in 1974, but they 
contributed only 67 percent of farm sales. Corporations and partner- 
ships, tending to be larger, contributed IS and 14 percent of the total 
sales, respectively. Corporate farms, numbering 28,442, accounted for 
about 1 percent of all farms but for 11 percent of the land and 18 
percent of the sales. Twenty-one percent of all farming corporations 
were located in Calif omia, Florida, and Texas. Farming corporations 
owned or rented an average of 3,377 acres per farm, six times the 
average for all commercial farms in 1974. Ninety-three percent of 
farm corporations reported 10 or fewer shareholders. The number of 
farms operated by corporations with 10 or fewer shareholders rose 
from 19,716 in 1969 to 25,677 in 1974, a 30-percent increase. Farms 
operated by corporations with more than 10 shareholders rose from 
1,797 to 1,960, an 8-percent increase. Farm product sales from corpora- 
tions with 10 or fewer shareholders doubled between 1969 and 1974, 
while the sales of corporations with more than 10 shareholders tripled. 

NUMBER, ACRES, AND SALES OF FARMS BY FORM OF ORGANIZATION, UNITED STATES, 1974 1 



Form of 
organization 


Farms 




Land i 


n farms 


Farm product sales 


Number 


Percent 


1,000 acres 


Percent 


Million 


Percent 


Individual 


1,517,787 


89.5 

8.6 

1.7 

.2 


678, 738 

124, 479 

96, 125 

6.298 


74.9 

13.7 

10.6 

.7 


$54, 294 

11,232 

14,648 

424 


67.4 


Partnership 

Corporations 

Other * 


144,969 

28,442 

3,849 


13.9 

18.2 

.5 


Total 


1,695,047 


100.0 


905, 640 


100.0 


80, 598 


100.0 


i Farms with sales of $2,500 or more. 
2 Estates, Indian reservations, etc. 













Source: 1974 Census of Agriculture, Special Survey of Corporations, preliminary. 

In 1974, nearly a third of the corporations with 10 or more share- 
holders were in California, Florida, and Texas. These corporations 
tend to account for larger shares of fed cattle, selected fruits and 
vegetables, turkeys, nursery and greenhouse products and sugarcane. 

Over three-fourths of the 28,442 corporations enumerated in 1974 
were classified as family owned. Only 785 were publicly held. Family 
farm corporations are frequently operated like partnerships or single 
proprietorships and are formed to preserve the family farming opera- 



19 

tion by easing the transfer of assets among generations. Among corpora- 
tions whose primary business is farming, family corporations continue 
to predominate. However, family corporations are much less prominent 
among those engaged in farming but receiving over half their receipts 
from nonfarm activities. The following tables present data on corporate 
farms by State and type of ownership. 

FARMING CORPORATIONS IN THE UNITED STATES, 1974 



Corporation 



Farms 



Number 



Land in farms 



jrcent 1.000 acres 



Percent 



Product sale 



M : iion 

dollars Percent 



Primary farm firms 1 

Privately held 

Family 

Other2 

Publicly held and other 

Business-associated farm firms 3 

Privately held 

Family 

Other* 

Publicly held and other 



24, 982 


87.8 


81,819 


85.1 


11.716 


80.0 


24, 820 


87.3 


81, 208 


84.5 


10, 928 


74.6 


20, 282 
4, 538 


71.3 
16.0 


67, 898 
13,310 


70.6 
13.9 


7,046 
3.882 


48.1 
26.5 


162 


.5 


611 


.6 


788 


5.4 


3, 460 


12.2 


14, 305 


14.9 


2.932 


20.0 


2,675 


9.4 


9,178 


9.6 


989 


6.7 






1, 476 
1, 199 


5.2 
4.2 


2,810 
6,368 


2.9 
6.7 


296 
693 


2.0 
4.7 



785 



2.8 



5,127 



5.3 



1,943 



13.3 



1 50 percent or more of corporate receipts from farming. 

2 Other includes independent and parent. 

3 Less than 50 percent cf corporate receipts from farming. 

Source: 1974 Census of Agriculture, Special Survey of Corporations, preliminary. 

CORPORATE FARMS, LAND IN FARMS, AND FARM PRODUCT SALES FOR CORPORATIONS WITH 10 OR FEWER AND 
MORE THAN 10 SHAREHOLDERS, BY STATES, 1974 i 



States 







Land in 


farms 


Farm product sales 


Number of cor 


porate farms 
More than 10 


(in thousands of acres) 
1 to 10 More than 10 


(in millions 


of dollars) 


1 to 10 


1 to 10 


More than 10 


shareholders 


sharenolders 


shareholders 


shareholders 


shareholders 


shareholders 


140 


6 


111.1 


20.6 


41.5 


14.9 


56 


2 


13.2 


.7 


12.8 


6.2 


71 


5 


3S.6 


2.4 


11.5 


.5 


272 


22 


56.8 


15.4 


51.0 


19.6 


31 


1 


5.1 





7.2 


.1 


154 


19 


29.9 


12.7 


28.7 


28.3 


874 


34 


352.6 


22.1 


175.3 


30.2 


336 


11 


94.0 


8.0 


68.3 


5.5 


509 


35 


179.7 


36.1 


137.6 


51.0 


679 


52 


255.8 


21.5 


133.5 


29.4 


784 


32 


429.2 


29.2 


176.9 


21.1 


476 


52 


311.2 


100.5 


123.1 


41.1 


387 


15 


204.1 


21.4 


98.3 


8.2 


786 


69 


531. 7 


116.8 


140.5 


62.6 


675 


46 


543.9 


55.7 


206.9 


31.5 


1,012 


47 


656.8 


62.0 


245.4 


49.0 


717 


33 


689.3 


42.9 


113.9 


26.6 


62 


4 


129.3 


9.8 


12.2 


3.4 


426 


14 


2,219.4 


43.7 


113.2 


21.5 


1,116 


40 


3, 923. 5 


4S0.0 


552.0 


132.7 


629 


33 


1, 396. 


82.3 


611.0 


148.7 


77 


4 


75.3 


2.7 


45.8 


6.6 


263 


18 


145.8 


17.8 


67.9 


13.4 


332 


28 


302.4 


60.9 


97.7 


14.7 


66 


6 


47.8 


1.9 


9.2 


2.6 


525 


54 


326.8 


73.9 


134.4 


44.0 


220 


12 


232.4 


26.2 


46.7 


8.1 


406 


41 


605.7 


57.2 


121.1 


48.5 


1,831 


173 


2, 478. 7 


1,605.2 


654.7 


331.8 


302 


10 


165.6 


14.6 


42.1 


2.9 


169 


13 


93.8 


30.9 


24.8 


8.6 



Maine 

New Hampshire 

Vermont 

Massachusetts 

Rhode Island 

Connecticut 

New York 

New Jersey 

Pennsylvania 

Ohio 

Indiana 

Illinois 

Michigan 

Wisconsin 

Minnesota 

Iowa 

Missouri 

North Dakota 

South Dakota 

Nebraska 

Kansas 

Delaware 

Maryland 

Virginia 

West Virginia 

North Carolina 

South Carolina 

Georgia 

Florida 

Kentucky 

Tennessee 

See footnotes at end of table 



20 

CORPORATE FARMS, LAND IN FARMS, AND FARM PRODUCT SALES FOR CORPORATIONS WITH 10 OR FEWER AND 
MORE THAN 10 SHAREHOLDERS, BY STATES, 1974— Continued 









Land in 


i farms 


Farm product sales 




Number of corporate farms 
1 to 10 More than 10 


(in thousands of acres) 


(in millions of dollars) 




1 to 10 


More than 10 


1 to 10 


More than 10 


States 


shareholders 


shareholders 


shareholders 


shareholders 


shareholders 


shareholders 


Alabama 


220 


22 


251.4 


39.4 


72.1 


26.2 


Mississippi 


460 


31 


827.9 


85.8 


120.8 


52.7 


Arkansas 


564 


44 
64 


857.3 
550.4 


63.1 
308.1 


162.3 
110.2 


65.3 


Louisiana 


376 


67.8 


Oklahoma... 


287 


19 


710.3 


67.8 


204.5 


39.7 


Texas 


1,228 


164 


5, 668. 1 


3, 143. 5 


881.0 


826.2 


Montana 


1, 184 


25 


11,550.7 


490.7 


188.2 


23.5 


Idaho 


664 


23 


2, 079. 


84.1 


261.0 


19.8 


Wyon^ng 


528 


20 


8, 881. 8 


968.6 


77.3 


4.4 


ColorcJo. 


845 


48 


4, 197. 


611.4 


466.0 


344.0 


New Mexico 


290 


32 

63 


5, 861. 1 
3, 349. 9 


2, 093. 8 
2, 324. 5 


130.9 
461.4 


60.5 


Arizona 


364 


156.2 


Utah 


293 


17 


1,738.8 


116.4 


53.7 


8.7 


Nevada 


114 


12 


2, 502. 3 


918.9 


44.8 


5.9 


Washington 


898 


48 


1, 737, 9 


123.9 


326.3 


102.0 


Oregon 


574 


38 


2, 389. 4 


533.0 


189.4 


45.2 


California 


2,228 


303 

1 


3, 989. 6 
408.4 


1,463.3 
1.0 


1, 904. 2 
1.5 


721.1 


Alaska 


10 


.2 


Hawaii 


117 


55 


296.2 


873.4 


41.0 


494.8 


U.S. total 


25,677 


1,906 


74,517.9 


17,415.2 


10, 022. 9 


4,277.6 









1 805 corporations did not report the number of shareholders. 

Source: 1974 Census of Agriculture, Special Survey of Corporations, preliminary. 

There were 81,738 partnerships in 1976. They are especially 
numerous in Illinois, Iowa, Texas, and California. Three-fourths 
involved only two partners and one-sixth involved three partners. 
Only 838 partnerships were comprised of six or more parties. Non- 
related partnerships constituted only 7 percent of all farming partner- 
ships and the vast majority of these were made up of only two partners. 
Nonrelated farm partnerships were most numerous in Indiana, Illinois, 
Missouri, Kentucky, Texas, and California. 



VERTICAL COORDINATION 

The farm sector today is increasingly dependent on the nonfarm 
economy to produce and market its products. This has provided the 
incenl ive for development and growth of close vertical ties between the 
farm sector, input suppliers, and food processors and distributors. 

The proportion of total farm production under various forms of 
contracting and vertical integration increased from 19 percent in 1960 
to 22 percent in 1970. Contract production increased from 15.1 to 17.2 
percent and vertical integration (combining two or more stages of the 
pro liiet ion -marketing system within one firm) from 3.9 to 4.8 percent. 
Both contracting and vertical integration increased more in livestock 
products— especially U>d cattle, eggs, and turkeys— than in crops. The 
following tables show the percentage of major crop and livestock 
commodities produced under vertical integration and contracts, and 
the methods used to coordinate the production of selected commodities. 

('lose coordination between the production, processing and market- 
ing stages is essential for most perishable commodities. The economic 
risks involved in producing and marketing these commodities are 
grei ter than those for less perishable commodities such as grains. 
Perishable commodities are also unsuited to programs of the type 
operated for grains and cotton. Contracting and vertical integration 
are attempts to achieve stability, thus reducing the risk in the produc- 
tion and marketing of perishable commodities. 



21 

Formalized t} r pes of vertical coordination also appear to be condu- 
cive to large scale, highly specialized agriculture. Preliminary results 
of a recent survey of contract production, conducted jointly by ESCS 
and the Census Bureau, indicate that a large proportion of production 
contracts are held by farms in the larger sales classes. 

PERCENT OF CONTRACTS BY GROSS VALUE OF PRODUCTS SOLD, UNITED STATES, 1977 



Feeder and 
Gross value of stocker 

products sold cattle 



Commodity 



Feeder Slaughter 

pigs hogs Broilers! 



Eggs Tomatoes 



Potatoes 



$500,000 or more 

$100,000 to $500,000. 
$40,000 to $100,000.. 
$10,000 to $40,000... 
Less than $10,000... 

Total 



6 


1 


9 


4 


10 


24 


37 


11 


33 


51 


57 


38 


28 


30 


44 


34 


28 


20 


25 


44 


9 


10 


4 


16 


4 


14 


5 





1 


2 



100 



100 



100 



100 



100 



100 



100 



i Value of contract sales adjusted to represent farm value of broilers sold. 
Source: 1977 Survey of Contract Production, preliminary. 

Vertical coordination also influences the location of production. 
Large multiproduct firms are increasing their market share in the 
input, processing, and merchandising sectors. These regional and 
national firms are not dependent on any one area for farm produced 
raw materials. They obtain supplies in areas where they can get the 
volume, quality, and prices needed to support nationwide marketing 
programs. Consequently, their activities help determine location 
of production with the result that family farms producing for localized 
markets along with their associated input suppliers and marketing- 
firms are placed at a competitive disadvantage. 

Formalized methods of vertical coordination are transforming 
agricultural production into two sectors. Firms producing commodities 
such as broilers, fed cattle, and some vegetable crops are increasingly 
using techniques of production and coordination similar to industrial 
processes. In contrast, range cattle, grain, and most field crop producers 
retain conventional family farm styles of operation. 

CROPS: ESTIMATED PERCENTAGE OF OUTPUT PRODUCED UNDER PRODUCTION CONTRACTS AND UNDER 
VERTICAL INTEGRATION, UNITED STATES, 1960 AND 1970 



Crop 



Production 


contracts 


Vertical ii 


itegrat'on 


1960 


1970 


1960 


1970 


0.1 


0.1 


0.4 


0.5 


.3 


.3 ... 






1.0 


2.0 


.3 


.5 


20.0 


21.0 


25.0 


30.0 


67.0 


85.0 


8.0 


10.0 


35.0 


1.0 


1.0 


1.0 


40.0 


45.0 


30.0 


25.0 


60.0 


55.0 


20.0 


30.0 


20.0 


20.0 


15.0 


20.0 


98.0 


98.0 


2.0 


2.0 


40.0 


40.0 


60.0 


60.0 


5.0 


5.0 


2.0 


2.0 


5.0 


11.0 


3.0 


1.0 


2.0 


2.0 


2.0 


2.0 


1.0 


1.0 


.4 


.5 


80.0 


80.0 


.3 


.5 


5.0 


5.0 


1.0 


1.0 



Feed grains... 

Hay and forage 

Food grains 

Vegetables for fresh market 
Vegetables for processing.. 

Dry beans and peas 

Potatoes 

Citrus fruits 

Other fruits and nuts 

Sugar beets 

Sugarcane 

Other sugar crops 

Cotton 

Tobacco 

Oil bearing crops 

Seed crops _ 

Miscellaneous crops 

Total 



9.5 



4.3 



4.8 



Source: Ronald Mighell and William Hoofnagle. "Contract Production and Vertical Integration in Farming, 1960 and 
1970." ERS-479. Washington, D.C. Economic Research Service, U.S. Department of Agriculture. April 1972, p. 4. 



99 



LIVESTOCK AND LIVESTOCK PRODUCTS AND TOTAL FARM OUTPUT: ESTIMATED PERCENTAGE OF OUTPUT 
PRODUCED UNDER PRODUCTION CONTRACTS AND UNDER VERTICAL INTEGRATION, UNITED STATES, 1960 
AND 1970 



Crop 



Production contracts 



Vertical integration 



1960 


1970 


1960 


1970 


10.0 


18.0 

7.0 


3.0 
2.0 


4 


2.0 


3.0 


.7 


1.0 


.7 


1.0 


95.0 


95.0 


3.0 


3.0 


25.0 


25.0 


2.0 


1.0 


5.0 


20.0 


10.0 


20.0 


93.0 


90.0 


5.0 


7.0 


30.0 


42.0 


4.0 


12.0 


3.0 


3.0 


1.0 


1.0 


27.2 


31.4 


3.2 


4.8 


15.1 


17.2 


3.9 


4.8 



Fed cattle 

Sheep and lambs 

Hogs 

Fluid-grade milk 

Manufacturing-grade milk 

Eggs 

Broilers 

Turkeys 

Miscellaneous 

Total livestock items 

Total farm output, crops and livestock 



Source: Ronald Mighell and William Hoofnagle. "Contract Production and Vertical Integration in Farming, 1960 and 
1970." ERS-479. Washington, D.C.: Economic Research Service, U.S. Department of Agriculture, April 1972, p. 5. 

METHODS OF COORDINATING PRODUCTION OF SELECTED AGRICULTURAL COMMODITIES, 1970 
[Percent of production] 



Corporate 



Commodity 







Contracts 


Producer 
cooperatives 




Vertical 
integration 


Individual 
producers 


Producer 

bargaining 
associations 


Open 
markets 


2 .. 




23 . 
15 . 
85 . 
69 
14 

42 . 
24 

"z6\ 
21 . 


98 

9" 

3 

i§~ 

8 






60 
3 
7 

10 


17 ..., 
180 

5 

7 

38 
17 

8 

30 
15 

5 


2 

3 
5 


30 


15 


12 


29 


25 


30 


20 .. 
20 


42 
45 


30 


44 



Sugar beets 

Sugarcane 

Fluid grade milk 

Broilers. 

Processing vegetables... 

Citrus fruits 

Turkeys 

Potatoes 

Deciduous fruits and nuts 

Eggs 

Fresh market vegetables.. 



Includes producer bargaining associations. 

Source: William Manley and Donn Reimund. "Interrelations in Our Food System." (Paper presented at 1973 National 
Outlook Conference). Washington, D.C.: Marketing Economics Division, ERS, U.S. Department of Agriculture, 1973, p. 6. 



Forces Affecting the Structure of Farming 

Like the nonfarm sectors of the economy, the farming sector is 
shaped by the interaction of economic, political, and technological 
forces. This section of the report discusses the factors instrumental 
in developing the structure of agriculture. 

technological economies of size 

One of the most important reasons behind the trend toward larger 
farming units is the economies of size, evidenced by lower unit costs 
of production that can be attained as farms become larger. Economies 
of size in producing farm products are closely associated with tech- 
nological innovation. Innovations of both a biological or yield increas- 
ing, and of a mechanical or labor saving nature have increased the 
productivity and affected the structure of farming. Mechanical 
technology, however, has had the greatest structural impact, pri- 
marily because increased capacity of machinery and equipment has 
reduced labor requirements and enabled individual farmers to operate 
larger units. 

MEASURES OF FARMING SECTOR PRODUCTIVITY, SELECTED YEARS 
[1957 equals 100] 

Index of total 
Index of crop Index of farm output per pro- 

production output per hour duction input 

per acre of labor (productivity) 

Year: 

1950 

1960... 

1970 

1975... 

1976 

Most studies have generally cod eluded that the significant pro- 
duction economies are achieved by relatively modest sized farms. 
However, these studies are not recent and reflect the technology of 
the late 1950's. 

Significant technological innovations during the past two decades 
altered the input mix and shifted the cost functions of production 
agriculture, generally in favor of larger farms. Examples are high 
capacity four-wheel drive tractors, center pivot irrigation S3 T stems, 
mechanical fruit and vegetable harvesters, and infrared aerial 
photography and computerized electronics for monitoring crop 
conditions. The capital requirements of these technologies preclude 
their adoption on small farms. 

(23) 



69 


34 


71 


89 


65 


90 


104 


112 


102 


112 


144 


115 


112 


152 


116 



24 

INDEXES OF TOTAL FARM INPUTS AND SELECTED INPUT SUBGROUPS, UNITED STATES, SELECTED YEARS 

[1967 equals 100] 

Total inputs 



Mechanical Farm Agricul- 

Non- Farm po^/er and real tural 

All purchased Purchased labor machinery estate chemicals 



104 


150 


70 


217 


84 


105 


29 


101 


119 


86 


145 


97 


100 


49 


99 


96 


102 


90 


100 


98 


115 


100 


92 


107 


80 


112 


93 


127 


101 


90 


113 


78 


113 


94 


141 



Year: 
1950. 
1960_ 
1970. 
1975. 
1976. 



The farming sector has traditionally operated on narrow profit 
margins. In 1975, for the sector as a whole, a farm with sales of over 
$100,000 was required to earn a 5-percent return to equity after 
covering all fixed and variable costs, including operator labor and 
management. Smaller farms earned lower rates of return to equity. 
This combination of economies of size and low profit margins is a 
strong incentive for a farmer to achieve an operating unit large 
enough to earn an adequate return on the operator's investment. 

PECUNIARY AND MARKET ECONOMIES 

In addition to technical size economies, the structure is influenced by 
pecuniary and market economies. There are economies of size not 
directly related to the firm's technical production function. Examples 
are economies in the acquisition and utilization of information, the 
ability to obtain price premiums and volume discounts, access to 
product markets, and access to capital markets. Pecuniary and market 
economies affect farm size, location of production, and the degree 
of coordination with other sectors of the food system. These stem 
from transactions with input and product markets, financial institu- 
tions, and the transportation system. 

Unfortunate^, analytical knowledge of pecuniary and market 
economies is virtually nonexistent. The scant available evidence 
indicates that such economies have contributed importantly both to 
the growth of large-scale farms and contract and integrated produc- 
tion. These studies suggest that average costs continue to decline, 
even beyond the size at which technical economies are exhausted. 
Large-scale farms apparently achieve substantial economies unavail- 
able to smaller farms in purchasing, product marketing, acquisition 
and utilization of information, and financial management. 

LAND PRICE INCREASES 

Increasing farmland prices have importantly affected the structure 
of the farming sector. By increasing initial capital requirements, they 
have been a barrier to entry into farming and have shifted the ad- 
vantage in buying real estate to established farmers or others with 
financial capability to survive the initial investment period. The 
historical performance of land prices has increased the attractiveness 
to Donfarmers searching for inflation-hedge investments. 



107 




122 


14.0 


132 


8.2 


150 


13.6 


187 


24.7 


213 


13.9 


242 


13.6 


283 


16.9 


308 


8.8 



25 

Farm real estate prices nationally have nearly tripled in the last 10 
years. The rate increase, however, has been irregular. Regions with 
the highest rates are the Northeast, Corn Belt, and Appalachian, 
while the Pacific, Delta and Southern Plains regions have had the 
smallest increases. Price increases in 1977 were significantly less than 
for any year since 1972, reflecting the relatively low prices of many 
farm products. 

INDEX OF FARM REAL ESTATE VALUE PER ACRE, UNITED STATES, 1968 TO 1978 

Index of value 
per acre 
(1967 equals 100) Percent increase 

Year: 

1968 

1971. 

1972 ... - 

i9^3 

1974... „ 

1975. 

1976.... 

1977 

197S 



Over time, farmland prices are largely determined by the returns to 
farming. Because larger, well-established farmers earn a higher rate of 
return than do small farmers, they are able to pay more for the avail- 
able land. Consequently, farmland prices reflect the rates of return 
that can be earned by the most efficient farms. Smaller, less efficient 
operators are thus at a disadvantage in competing for land. 

Farmland prices are also often influenced by the potential for non- 
farm uses such as rural residences, subdivisions and commercial 
development. This, of course, reflects the role of land as an invest- 
ment, rather than as an input for food production. 

Only a small percentage of the farmland changes ownership each 
year and most of the land that is sold, about 90 percent for the last 
2 years, remains in farming. Fifty-eight percent of farmland pur- 
chases in the last year were for farm enlargement, compared with the 
record 63 percent the previous year. 

During the past year, individuals were net purchasers of farmland, 
privately held corporations and partnerships were net sellers. Publicly 
held corporations sold about the same amount of farmland as they 
bought. In the previous year individuals, partnerships, and public 
corporations were net sellers and private corporations net purchasers. 

Purchase of farmland for residential housing is the most common 
competitive use with farming. In the past }^ear, purchases of farmland 
for rural residential use were 10 percent of all purchases, 2 percent of 
the acreage, and 3 percent of the value. Use for subdivision accounted 
for 4 percent of purchases, 5 percent of acreage, and 5 percent of value. 
The average price per acre for tracts of less than 100 acres averaged at 
least twice the overall average price, reflecting the nonfarm competi- 
tion for smaller tracts of land. 



26 

PERCENTAGE DISTRIBUTION OF FARM REAL ESTATE TRANSFERS BY INTENDED END USE, 1977 AND 19781 

1977 1978 



Land use Purchases Acres Value Purchases Acres Value 

Agriculture only 80 91 90 81 90 89 

Forestry 2 112 2 1 

Mineral (?) (*) (2) (2) (2) (2) 

Recreation 2 1 1 1 (2) (a) 

Rural residence.. 9 2 3 10 2 3 

Subdivision....' 4 2 3 4 5 5 

Commercial-industrial... 1 ( 2 ) 1 1 (2) 1 

Other 2 2 2 11 1 

1 Totals may not add to 100 due to rounding. 

2 Less than 0.5 percent. 

The large number of farmland transfers for rural residential use is 
consistent with the renewal of population growth in rural areas since 
1970. In 1970, less than 20 percent of the rural population was counted 
as farm population. The increase of rural residences has important 
implications for the structure of agriculture. Many of these rural 
residents will enter the farm sector, at least statistically, by farming 
on a retirement, part-time, or hobby basis. By operating small, essen- 
tially noncommercial farms, they will earn low farm incomes and add 
to the "small farm" problem. In reality, most will have relatively 
high incomes. A major need is for data so we can distinguish between 
rural resident farmers and legitimate small farmers, who may indeed 
have low income problems. 

IMPACTS OF INFLATION ON THE FARMING SECTOR 

Inflation influences farm income and wealth by quickly and fully 
appearing in prices of goods and services purchased by farmers, while 
insignificantly increasing farm product prices in the short run. The 
result is a cost -price squeeze because farmers, unlike less competitive 
industries that have more control over product prices, have no im- 
mediate means to pass incurred cost increases to purchasers of their 
product. Beginning farmers and those with tenuous financial positions 
are especially vulnerable to inflation. Consequently, inllation also 
serves as a vehicle for weeding out less efficient farmers. Thus, the 
short-run effect of inflation is to reduce farm, numbers and increase 
farm size. 

Over the longer run, farmers are able to either restrict output, 
thereby raising farm prices and passing their own increased costs 
through the marketing system to consumers, or reduce costs by tech- 
nology and increased size. In either case, the improved returns to 
farming become capitalized into farmland values. Increased laud 
values lift the wealth and net equity position of farmers, and provide 
capital gains which may be used to finance farm expansion. As noted 
above, large efficient farmers with rates of return above the sector 
average can effectively bid land away from potential small farm 
purchasers. The long-run impact of inflation is thus to benefit the 
efficient, established farmers, serve as a barrier to new entrants, and 
to increase farm size. 

Ultimately, inflation creates strong pressures for farmers to gen- 
erate bargaining power ami to become involved in administered or 
negotiated pricing arrangements to quickly pass higher costs on to 
the next level in the market chain. Thus does inflation become a factor 



27 

in the growth of contract and integrated production, as well as group 
action devices such as marketing orders and bargaining associations. 
Therefore, inflation may be viewed as leading toward more clo.-ely 
coordinated structure in agriculture. 

FARM PRICES 

Prices received by farmers for all commodities increased at about 
the same rate as all wholesale prices between 1960 and 1970, but they 
rose much more rapidly in the early 1970's. Through 1972, the ratio 
of prices received to paid for production inputs, a rough measure of 
the well-being of farmers, was relatively constant. In 1973 and 1974 
the prices received to prices paid ratio was very favorable to farmers. 
From 1975 through 1977 the ratio of prices received to prices paid 
declined, as the increase in prices for farm products leveled off while 
input prices continued to rise. 

INDEX NUMBERS OF PRICES RECEIVED BY FARMERS, PRICES PAID BY FARMERS FOR PRODUCTION ITEMS, WHOLE- 
SALE PRICE INDEX, AND RATIO OF PRICES RECEIVED TO PRICES PAID BY FARMERS, SELECTED YEARS 

[1967 equals 100] 







Prices received 




Prices paid 




Ratio of 














Livestock and 




for all 




prices 






livestock 


All farm 


production 


Wholesale 


received to 




Crops 


products 


products 


inputs 


price index 


prices paid 


Year: 














1960 


99 


92 


95 


92 


94.9 


1.03 


1970 


100 


118 


110 


108 


110.4 


1.02 


1971 


108 


118 


113 


113 


113.9 


1.C0 


1972 


114 


136 


125 


121 


119.1 


1.03 


1973... 


175 


183 


179 


146 


134.7 


1.22 


1974 


224 


165 


192 


166 


160.1 


1.16 


1975 


201 


172 


185 


183 


174.9 


1.01 


1976. 


197 


177 


186 


193 


182.9 


.96 


1977 


192 


175 


183 


200 


194.2 


.91 



Changes in the ratio of prices received to prices paid, by affecting 
net farm returns, become capitalized into the value of farmland. Con- 
sequently, farm product prices at artificially high levels provide wind- 
fall increases in wealth to farmers and other owners of farmland, which 
stimulates the search for land to add to their holdings even at inflated 
prices. But high product prices also increase net returns to smaller 
farmers, and slows the rate of decrease in farm numbers. 

Over time, however, as higher priced land is rented for more, and as 
new farmers begin where old ones leave these high land values are 
incorporated into the cost structure, and rates of return to farming 
fall. High land prices increase the competitive advantage of established 
farmers and well-capitalized investors in the land market, thus encour- 
aging the growth of larger farms. 

Alternatively, low farm prices relative to production costs would 
result in lower current farm incomes and reduced wealth and equity 
positions for farmers. Well-established farmers with sufficient equity 
and savings could endure such low farm prices for an extended period. 
However, farmers with low equity ratios and those in otherwise weak 
financial positions could be forced to quit farming or seek other sources 
of supplementary income. Thus, the short-run effect of low farm prices 
is to speed up the exodus of low equity farmers and discourage poten- 
tial new farmers. Their farm assets would likely wind up in the hands 



28 

of established, financially strong farmers and land speculators who 
would then hold the land in expectation of future capital gains. In 
the longer run, lower land prices would lower the cost structure of 
succeeding farmers. 

IMPACT OF RISK AND INSTABILITY 

Instability in agriculture arises from both natural and "manmade" 
sources. Natural instability reflects weather, diseases, insects, etc. 
(affecting yields) and consequently alters output and prices. Earlier, 
when farming was largely for subsistence and supply of local markets, 
farmers' welfare was largely determined by localized weather condi- 
tions. Today, however, farming serves national and international mar- 
kets, and weather conditions around the world affect commodity prices 
and farm welfare. 

Classic examples of manmade instability are the herd-population 
cycles for cattle and hogs. This type of instability arises because 
farmers must base their production decisions on expectations of what 
prices will be at the end of a production period. For some commodities 
such as cattle and orchard crops, this may be several years. 

The internationalization of agricultural markets add to "manmade" 
instability by introducing the influence of political and economic con- 
ditions in foreign markets. This affects foreign demand for U.S. farm 
products and supplies of key inputs such as petroleum and some fer- 
tilizer ingredients for example. The increasing dependence on foreign 
markets for both product sales and input supplies has increased the 
level of risk and instability inherent in agriculture. Regardless of 
source, instability influences the structure of farming by reducing pro- 
duction efficiency. Production decisions must be made concerning not 
only the economically efficient level of inputs and outputs, but also 
the appropriate mix of each — more fertilizer and less pesticides for 
example, and more soybeans and less corn. These decisions, however, 
are based on expectations; yields and prices are known with certainty 
only at the time of harvest or later. Only by chance are the initial 
derisions the most efficient as exact knowledge of prices would allow. 

Most economists once thought that small farms were less vulnerable 
to instability than large farms, and that instability was a deterrent to 
the growth of large-scale corporate tA^pe farming units. However, be- 
cause the largest farms are concentrated in high-risk types of farming, 
such as cattle feeding and vegetable production, and the more stable 
types of farming, such as feed grain and wheat production, largely 
remain the domain of smaller family farmers, the validity of the con- 
vent ional wisdom is questioned. 

One argument is thai Large farms are able to develop institutional 
arrangements and risk management strategies that enable them to 
reduce risk or partially shift it to others in the production-marketing 
system. Study of structural change in the cattle feeding, broiler, and 
processing vegetable subsectors suggests that the efforts of producers 
and marketing linns to deal with risk are primary reasons for the 
growth of Large scale, highly coordinated production units. Neverthe- 
less, too little is known about the comparative abilities and willingness 
of family and Large scale farms to cope with risk and instability, the 
risk management Strategies that are used by various sizes and types 
of farms, or the structural impacts of these strategies. 



29 

CREDIT INSTITUTIONS 

The major source of capital for agriculture between 1870 and 1950 
was generated internally via saving and reinvestment. The current 
situation is quite different. Technological innovations, specialization, 
and industrialization are changing the relative value, optimum mix, 
and quantity of resources and inputs required for efficient production 
units. Most of the changes have required increased capital. The total 
investment in farm production is expanding faster than equity capital 
is generated from farm earnings and depreciation. As a result, the 
farm sector is increasingly dependent on outside investment capital. 

These increasing capital needs have largely been supplied by general 
credit institutions (commercial banks, insurance companies), and spe- 
cialized credit institutions serving the agricultural sector (Federal 
land banks, production credit associations, and the Farmers Home 
Administration). By providing necessary investment and operating 
funds, these institutions have encouraged growth in farm size and the 
rapid technological advances of the past two decades. To a lesser, but 
still significant extent, credit institutions have been a factor in the 
growth of closer vertical ties between the production and marketing 
sectors for some commodities. This results because lenders are reluc- 
tant to make operating loans for open market or speculative production 
of risky commodities, but are more likely to accept production con- 
tracts as loan collateral. 

Only the Farmers Home Administration is oriented specifically to 
serving the credit needs of farmers with limited resources. This agency 
is a leading institutional source of real estate loan funds for young 
farmers with small farm sales. In 1970 the FmHA held 22 percent of 
the real estate debt of farmers under age 35 with less than $10,000 of 
farm sales. It held 18 percent of the real estate debt of young farmers 
with farm sales between $10,000 and $40,000. A major impact of the 
FmHA has been to provide a means of entry for young farmers who 
would otherwise have been financially inadequate. 

TAX POLICIES 

The tax system has been an important mechanism of agricultural 
policy. Traditionally, the Congress has evidenced a concern with the 
potential effects of tax legislation on agriculture, and has frequently 
included special treatment for agriculture. 

The cumulative effect of special exemptions and alternatives has 
apparently meant reduced tax liabilities for individuals with farm in- 
come. There is mounting evidence, however, that these benefits are 
not distributed in proportion to tax liabilities, and the actual conse- 
quences of these provisions may be quite different from those intended. 
The largest tax savings apparently accrue to the largest farms and to 
individuals investing in agriculture to take advantage of the special 
provisions. This results, of course, because tax savings are only bene- 
ficial to individuals who have tax liabilities in the first place, and that 
advantage grows as the marginal tax rate increases. 

It thus appears that congressional efforts to protect the family and 
small sized farm through the tax system may have been somewhat 
self-defeating, largely because of the difficulties in limiting the bene- 
fits of special tax preferences to the intended group. The provisions 
are so broadly written as to invite abuse, or so narrowly defined 
that they provide little actual assistance. 



30 

ENVIRONMENTAL AND OTHER REGULATIONS 

The proliferation of public regulation in recent years has also 
affected the farming sector. Environmental, worker health and safety, 
and food quality and safety regulations have multiplied. 

Environmental regulations from Federal, State or local authorities 
are imposed to prevent the environment, primarily water and air 
quality, from deterioration resulting from farming practices. The 
structural impacts of these regulations have not been fully assessed. 
In general, however, they raise production costs. To the extent that 
there are economies of size in complying with the regulations, the 
growth of large-scale production units will be further encouraged. 
For example, guidelines relating water quality standards to animal 
wastes or to runoff crop production entail the installation of disposal 
and control systems that require rather large fixed capital outlays of 
a nonproductive nature. These may well prove prohibitive to smaller 
farms, or at least will increase the relative advantage of their larger 
competitions. Exempting small farms from the standards may enhance 
their competitive position. Farms too large to be exempted, but too 
small to attain size economies, may well suffer the greatest burdens. 
This category includes a large number of medium-sized family farms. 

Regulations to protect farm worker health and safety relate pri- 
marily to housing standards for migrant workers, pesticide injury, 
and the safety of machinery and equipment. Compliance with stand- 
ards for housing and machinery are capital increasing, while avoidance 
of risks of pesticide injury to workers may entail changing cultural 
practices in some commodities. The structural implications of 
these regulations are not clear, but they will apparently require 
sophisticated managerial ability, in which large farms have a distinct 
advantage. 

Regulations relating to food wholesomeness and quality will likely 
increase the involvement in farming activities of food processors and 
marketers. These regulations affect the farming sector by imposing 
standards on the levels of pesticide and other chemical residues that 
may be contained in the food products. Consequently, a strong in- 
centive exists for processors and marketers to increase their control 
over the way agricultural commodities are produced. 

STRUCTURAL IMPACTS OF FARM COMMODITY PROGRAMS 

The individual and cumulative structural impacts of commodity 
provisions in the Food and Agriculture Act of 1977 are not well 
known. Some provisions of the act likely impact in a direct and 
immediate fashion, while others are more indirect, subtle and longer 
term. Better understanding of how the various provisions affect the 
structure of agriculture; the competitive position of family farms, 
and whether these eventual impacts are consistent with the intent 
of the Congress would represent a research agenda in and of itself. 

Payment limitations were built into the 1973 and 1977 farm acts 
to tilt the benefits of commodity support programs toward small and 
moderate-size farms. The 1973 act contained a $20,000 payment 
Limitation, but because of market conditions no such payments were 
made and thus the payment limitation had no effect. Under the 1977 
act the payment limitations of $40,000 for 1978, $45,000 for 1979, and 



31 

$50,000 for 1980 and 1981 are high enough that very few farms will be 
affected by them, even if market prices drop to loan levels and thereby 
maximize deficiency payments. For the few very large farms affected 
by the limitation, firm organization could be altered if producers 
attempt to devise means to circumvent the limit. If successful, pay- 
ments would not effectively be limited, and perhaps alternative means 
of achieving the limitation objective should be explored. 

Another possibility is that payment limitations cause large farms to 
shift to commodities not subject to the limitations or refuse to comply 
with program provisions. To the extent that large farms shift to other 
commodities, this could lead to a situation of concentration of the very 
large farms in locations and commodities not affected, whereas the 
so-called basic commodities covered by the limitations would tend to 
be produced by family sized farms. To the extent that large farms do 
not comply with the program, the effectiveness of the program is 
reduced. 

The payment limitations do raise a question of equity among 
producers of different commodities. The limitations apply only to 
deficiency and land diversion payments and not to loans. If target 
prices of, say, com and wheat are set to cover equal proportions of 
costs of production but the loan rates for the two commodities are not 
set proportional to target prices, the producer of the commodity with 
the highest relative loan rate is implicitly offered more price and income 
support (as a proportion of unit cost of production) not subject to the 
limitation. Thus, for the commodity having the higher relative loan 
rate, the program favors larger farms. In regions where producers have 
a choice between such commodities the program could lead to a shift 
to the favored commodity to permit further growth in farm sizes 
under the umbrella of Federal price protection. 

Under the 1977 act national average costs of production for individual 
crops are used as the basis for establishing target prices. Determining 
the potential longer run impacts of this provision involves a deter- 
mination of how the benefits of the commodity programs are distrib- 
uted and the implications of that distribution for structual change. 
If large firms are the relatively low-cost producers, the target prices 
will allow these producers to secure profits relative to the smaller, 
higher cost producers. 

If this is true, the large producers would be expected to capitalize the 
difference between their cost of production and the target price (or 
market price, if higher), thus bidding up the price of production 
assets namely land. It then would become more difficult for new pro- 
ducers to enter and more difficult to raise the capital required to secure 
the production assets (land) needed to have a viable operation. The 
long-term trend toward fewer and larger farms would be continued, as 
resources of the existing farmers would be assumed by present, larger 
than average producers rather than new ones. 

The 1977 act provides that program compliance and benefit dis- 
bursement are to be based upon current plantings rather than one 
acreage allotments determined from plantings in a historical base 
period. In addition to correcting other inequities, the elimination of 
historical allotments removed one incentive for consolidating farms 
into larger units. The old allotment system encouraged farmers to 
purchase additional farms or land having allotments and to consolidate 
those allotments onto their most productive land and thus qualify 



32 

for more Government benefits. For the major crops, there now is 
reduced incentive for combining farms in order to combine or shift 
allotments. 

The central features of the current farm commodity programs are 
those provisions designed to minimize risks, protect farm income, and 
reduce the extremes in farm and food prices. These provisions include 
market price supports (loan rates), income support (target prices 
and deficiency payments), natural disaster protection, and reserves. 
A net result of these provisions is to keep price fluctuations within 
a band bounded on the lower end by loan rates and on the upper end 
by CCC owned reserve release prices. These provisions reduce potential 
income fluctuations, but natural disasters remain as another major 
source of income instability. The 1977 act extended for 2 years the 
payments program that was initiated in the 1973 Farm Act, to provide 
deficiency payments based on target prices for preventing planting 
and low yields caused by natural disasters. Thus through the target 
price deficiency payments program, the grain reserve program, and the 
disaster (or subsidized insurance) programs, society has collectively 
assumed a significant proportion of the risk from both economic and 
natural disasters to farmers producing commodities covered by the 
programs. This risk protection could have significant longer term 
structural implications. Both economic and natural disaster protection 
affect the availability of capital (borrowing capacity), the rate of 
farmer exit (hence entry), the minimum rates of return to equity 
capital, efficient resource allocation and so on. The cumulative impacts 
of these provisions over the long term are not entirely clear and need 
to be researched further. However, past studies have tended to in- 
dicate that reduced risk encourages farm consolidation to increase 
volume and efficiency. Thus, the provisions of the 1977 Farm Act may 
contribute indirectly to the intensification of capital, the further 
consolidation of farm operating units, and the exodus of farm labor 
and farm families. 

Present farm programs, including research, continue to result in 
economic efficiency gains which ultimately transfers to consumer 
savings for food. We have not clearly identified the implied tradeoffs 
with other social goals, an issue that deserves research attention. 

PUBLIC RESEARCH, EDUCATION, AND TECHNICAL ASSISTANCE PROGRAMS 

Research, education, and technical assistance programs of the U.S. 
Department of Agriculture land-grant university system were major 
contributors to the over three-fourths increase in agriculture's 
productivity in the last 25 years. This publicly supported system has 
sponsored the vasl majority of the basic research and a significant 
portion of the applied developmental research that led to the mechan- 
ical and biological innovations that were adopted by the farming 
sector over the period. In addition, the education and technical 
assistance programs of the cooperative I SDA land-grant university 
extension services and the USDA Soil Conservation Service have 
been a major cause of the rapid adoption of these innovation^ by 
farmers. These technological innovations, especially those resulting 
in reduced labor requirements, have had a major impact on the 
structure of farming by permitting increased economies of size and 
capital requirements. 



33 

Publicly supported agricultural research, education, and technical 
assistance programs are primarily aimed toward increasing the pro- 
ductivity of the farming sector, although in recent years there has 
been increased emphasis on programs concerned with environmental 
quality, worker safety and energy conservation. These programs have 
had a greater impact in holding food costs down than they have had 
in raising farm incomes. This is because the competitive structure of 
the farm sector puts farmers in the position of being price takers and 
forces them to pass any cost reductions through the marketing s} 7 stem. 
Thus consumers, rather than farmers, have been the primary bene- 
ficiaries of publicly supported agricultural research, education, and 
technical assistance programs. 

Even so, there is a great incentive for farmers to adopt cost reducing 
technology. Early adopters receive profits before farm prices fall as 
many farmers adopt the technology and increase output. Late adopters 
incur losses as farm prices fall below their production costs. In effect, 
the farm sector finds itself on a technological treadmill, fueled largely 
by public funds. Nevertheless, these developments have made possible 
the enormous capacity and productivity of today's American agri- 
culture, thus assuring the Nation's consumers plentiful supplies of 
food at relatively low real costs while making it possible at the same 
time to be a major supplier of food to the rest of the world. 



UNIVERSITY OF FLORIDA 

ir Him ii ii n 

3 1262 09121 2505